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Up until the landmark Privy Council decision in Jardine Strategic Ltd v Oasis Investments II Master Fund Ltd & Ors No 2 (Bermuda) [2025] UKPC 34, a company could not, in the course of litigation between it and its shareholders or former shareholders, withhold documents from inspection on the grounds of legal advice privilege (the Shareholder Rule). The Board has now determined that the Shareholder Rule forms no part of the law of Bermuda, and should not be recognised in England & Wales. As a result, the strategic advantage which shareholders enjoyed, when litigating against companies, is likely no more or, at a minimum, much diminished.
Background
The Jardine Matheson Group is an international investment group with various companies falling under the group structure. Upon the amalgamation of two of the group's companies, a dispute arose with certain dissenting shareholders regarding the payment of 'fair value' for their shares. Proceedings were commenced and the Bermudan Court's intervention was sought to determine what the 'fair value' should be.
During these proceedings, the dissenting shareholders sought access to legal advice received by the company, Jardine Strategic, both prior to and following the commencement of the proceedings. Ordinarily such advice would be covered by legal advice privilege, however, the shareholders sought to deploy the Shareholder Rule to their advantage; their goal was to access the legal advice which the company had received in relation to fair value, the key issue in the dispute. At first instance and then on appeal, the Bermudan Courts held that the Shareholder Rule applied, and the dissenting shareholders should be permitted to access this information. Jardine Strategic appealed this decision to the Privy Council.
Shareholder Rule
Legal privilege is designed to protect the attorney client relationship, including the seeking and giving of legal advice. The origins of the Shareholder Rule may be found in a judgment delivered in the late 1900s1 and was rooted in a (now discredited) proprietary principle that shareholders have, in effect, paid for the legal advice due to the interest that the shareholders had in the company and, by extension, its funds. From this authority sprang the Shareholder Rule as an exception to the usual protections afforded by legal privilege. In later years as the proprietary basis for the rule fell away, shareholders came to rely upon joint interest privilege as the basis upon which shareholders were entitled to access company documents, which would otherwise be covered by privilege.
Privy Council Decision
While the appeal was framed to cover many issues and sub-issues in respect of the Shareholder Rule, the Board, in effect, distilled the appeal to a single issue: Should the Shareholder Rule continue to exist in some form?
Privilege is a fundamental right. The Board declared that the Shareholder Rule had never been part of the law of Bermuda and should no longer be recognised in England & Wales, issuing a Willers v Joyce direction to that effect.2 To illustrate the extent to which the rule had met a complete and unequivocal demise, the Board compared the rule to one of the most celebrated idioms of logical fallacy in popular culture, the emperor's new clothes:
"The status-based automatic Shareholder Rule is therefore now, and in truth has always been, a rule without justification. Like the emperor wearing no clothes in the folktale, it is time to recognise and declare that the Rule is altogether unclothed."3
Modern company laws have evolved rendering the Shareholder Rule inconsistent with the concept of a company being "a legal person separate from its members such that the member have no proprietary interest in the funds of the company used to pay for the advice".4 Further, the Board disagreed with the proposition that both the company's and the shareholders' interests were aligned, as they usually would be when the company is solvent for example, and stated that it was a "serious oversimplification" and that "[s]hareholders are simply not a homogeneous block with a single shared interest which may coincide with, or diverge from, the interests of the company."5
An exception from legal advice privilege, based upon joint interest privilege as between the company and the shareholders, met with similar criticism, with the Board finding that such an exception would "discourage companies from obtaining candid legal advice in confidence. It would ignore the separate personality of the company and it would wrongly assume a simple coincidence of interests contrary to the typical commercial reality."6
Implications for the Cayman Islands
While the Board did not expressly address the position in the Cayman Islands, it did criticise the approach of the Grand Court in the leading Cayman case on this topic: In Re 58.com Inc7, where the issue was addressed as follows:
"The Board would respectfully disagree with Kawaley JA's earlier conclusion in In Re 58.Com Inc (sitting in the Cayman Islands) that the Shareholder Rule is a form of equitable tempering of the strict consequences of the separate personality of a company. In the Board's view the availability or otherwise of legal professional privilege has nothing to do with equity's role in tempering the rigidities of the common law. On the contrary the need for certainty as to whether legal advice will be privileged or not demands a bright line, otherwise it will fail to serve the objective of encouraging the taking of legal advice."8 (Emphasis added).
While the judgment in Jardine Strategic is not automatically binding in the Cayman Islands, the Board applies the principle of "precedent on a cross-jurisdictional basis such that JCPC decisions will also bind the courts of other JCPC jurisdictions where the same point of law arises for decision. This will be the case where both jurisdictions apply English common law to the pointat issue, and there is no reason to suggest any difference between them."9 As a result, when the Shareholder Rule is next argued before a Cayman Court, it is highly likely that the judgment in Jardine will be followed. Indeed, if the common law were different on this point in the Cayman Islands, there is no reason why the Board would not have flagged that difference when considering the judgment In Re 58.com.
Conclusion
The 2025 Privy Council judgment in Jardine Strategic seeks to fundamentally reshape how legal advice privilege is treated in shareholder/company litigation. This judgment reinforces the separate legal personality of the company, in line with modern commercial realities, and acknowledges that company directors need to be able to seek legal advice in confidence and free from concerns that the advice will be disclosed in subsequent litigation. In delivering its judgment in Jardine Strategic, the Board sought to introduce a 'bright line' rule to govern legal professional privilege. Where Cayman Islands companies operate in multiple jurisdictions (with differing rules regarding privilege), the extent to which this can be achieved, in practice, remains to be seen.
Footnotes
1 Gouraud v Edison Gower Bell Telephone Co of Europe (1888) 57 LJ Ch 498.
2 The Privy Council does not form part of the Court system in England & Wales. By making a Willers v Joyce direction, the Privy Council declared that its decision should be regarded by courts in England & Wales as abrogating the Shareholder Rule for the purposes of litigation in those courts.
3 Jardine Strategic, at para 82.
4 Ibid, at para. 80.
5 Ibid, at para. 86.
6 Ibid, at para. 89.
7 Unreported, 22 March 2023, Kawaley J.
8 Jardine Strategic, at para. 94.
9 'The Work of the Judicial Committee of the Privy Council', Lord Hodge, Deputy President of the UK Supreme Court, Supreme Court of Brunei Darussalam, 27 February 2025.
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